Macy’s, the renowned American department store, has sent shockwaves across the retail sector with a cautionary note about the financial well-being of US consumers. This alert, issued recently, has drawn the attention of both industry experts and stock investors who are apprehensive about the potential aftershocks that could reverberate throughout the market.
In a recent report released on Tuesday, Macy’s disclosed a staggering 36% year-on-year plunge in sales attributed to its Citibank-powered credit card, with revenue plummeting to $150 million. The root cause of this decline has been attributed to an alarming trend where customers found themselves burdened by an overextended credit card balance amidst a backdrop of escalating interest rates. Consequently, many individuals struggled to meet their debt obligations, triggering a cascading effect of financial strain.
During a crucial investor call, Adrian Mitchell, the Chief Financial Officer of Macy’s, shed light on the prevailing crisis. He explained that surging delinquency rates were primarily responsible for the surge in bad debt, subsequently leading to a surge in net credit losses. This predicament was particularly pronounced among households with an annual income of $75,000 or less.
The toll of this downward spiral is exemplified by Macy’s year-to-date credit card sales, which have dwindled by approximately 24% in comparison to the previous year. This bleak financial outlook has had a direct impact on the company’s stock performance, causing it to plummet by a significant 14%. For a retail giant like Macy’s, the credit card segment has historically been a cornerstone of profitability.
Paul Lejuez, an astute analyst from Citigroup, underscored this point by revealing that Macy’s credit card operations raked in an impressive $863 million in sales just the previous year, representing an astounding 49% of its total operating profits. Prior to the pandemic, this figure stood at an even more substantial 58%. Lejuez highlighted the challenges faced by Macy’s in its second-quarter results, which were indicative of dwindling foot traffic and declining sales within its stores. The more pressing concern, however, was the stark nosedive in credit-related income—a pivotal component constituting nearly half of the company’s overall operating profits.
In the wake of this unsettling revelation, investors were prompted to reassess the value of Macy’s stock, thus setting off a chain reaction that resonated with competitors like Nordstrom and Kohl’s. Notably, Nordstrom observed that credit card sales comprised a staggering 87% of its operating profits in the preceding year, while Kohl’s depended heavily on this segment as well.
Lejuez expounded on the potential implications of this credit crisis, suggesting that retailers might opt to curtail lending activities, potentially translating to sales losses as consumers gravitate towards discounted “off-price” outlets. With consumers grappling with financial constraints towards the close of each month, industry stakeholders and investors remain vigilant for signals that could potentially forewarn about the overall health of the retail sector and, by extension, the broader US economy.
As Macy’s poignant caution reverberates throughout the financial landscape, the glaring dip in its credit card sales underscores a burgeoning financial fragility among US households. The overarching implications of this development have catalyzed an industry-wide introspection, as both the retail sector and financial markets brace for potential disruptions that could transcend the confines of consumers credit and permeate deeper into the economic tapestry.
Source: Yahoo Finance
